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More Than 55,000 South African SMMEs Will Close During COVID-19 Pandemic

More than 55,000 South African SMMEs will not survive the COVID-19 pandemic and associated economic turmoil, according to a survey.

The Global Entrepreneurship Network (GEN)-run 22 On Sloane startup campus in Johannesburg, which launched in 2018, conducted a survey of 120 small businesses last month in a bid to understand the impact of COVID-19 on SMME and startup businesses.

In a report detailing the findings of the survey, 22 On Sloane suggests that over 55,000 SMMEs will fail during the pandemic, at the cost of at least 42,350 jobs.

This estimate was based on the fact that 11 per cent of SMMEs who took part in the survey indicated that they do not see their businesses surviving during this period, and 43 per cent said they were not sure if their businesses would survive. Twenty-nine per cent of those SMMEs who said that they were not indicated there was at least a 20 per cent chance of retrenching.

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Extrapolating those figures to take into account the 250,000 SMMEs estimated to be operating in South Africa, the report finds the number of SMMEs who possibly would not survive this period lies between 54,950 and 61,717. Job loss estimates are based on the average staff sizes of these SMMEs.

In all, 92 per cent of small businesses said their operations had been affected by the crisis. Although 63 per cent said they could provide their products and services virtually, contact with clients is still very important. Types of support to reduce the negative impact include payment deferments (20%), obtaining credit facility on goods (15%) and rental subsidy (13%). Twenty percent (20%) do not have alternative support mechanisms.

The majority of businesses (71%) do not have enough cash to keep their business operational in the next three months, due to lack of income and measures put in place to curb the pandemic. Businesses that do have enough cash will be tapping into reserves (71%), or taking on loans (17%).

Fifty-six per cent of businesses said there was at least a 10 per cent likelihood that they might retrench due to lack of income, though only two per cent indicated a 100 per cent likelihood of retrenchment. Low sales, liquidity, and scaling down would be the main reasons for doing so.

In the midst of adversity, some small businesses indicated that they need to be resilient and agile where possible. Virtual working (56%) was seen as a future business opportunity, followed by diversifying offerings (46%) and thinking of disruptive approaches (37%).

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Written by PH

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